Government policy

A report by a committee of MPs has said that the costs and benefits of cutting the highest income tax rate from 50p to 45p are ‘highly uncertain’. They argue that the figures quoted by the Coalition government could be significantly out.

The warning is contained in the MPs’ analysis of the 2012 Budget measures. It calls on the government to publish a comprehensive assessment of the exchequer effect of the new 45p rate.

Deputy Prime Minister Nick Clegg has launched the Coalition government’s social mobility strategy, Opening Doors, Breaking Barriers. The strategy focuses on inter-generational social mobility, with the aim of ensuring that everyone has a fair chance to get a better job than their parents.

The approach moves away from income measures to support disadvantaged families to family intervention and an aspiration to extend pre-school provision to disadvantaged two-year-olds.

The report outlines five broad principles that underpin the government’s approach.

Two separate analyses have found that women are bearing the brunt of austerity measures introduced by the Coalition government. One analysis, by the House of Commons Library, calculates that nearly 75 per cent of budget savings since 2010 have primarily hit women’s incomes. A second analysis, by the Women’s Budget Group, examines the most recent (2012) Budget.

House of Commons research

The Commons Library traces the gender impact of a long list of fiscal measures, starting with the 2010 Budget. The combined impact – by reference to projected government revenues in 2014/15 – is calculated to be £14.9 billion, of which £11.1 billion (74.5 per cent) will fall primarily on women.

The most severe impacts derive from changes to public sector pension arrangements (£6.1 billion), the tapered removal of child benefit from higher-rate taxpayers (£1.6 billion), and the decision to freeze child benefit for three years (£1.3 billion).

The Chancellor’s annual budget statement contained a number of measures, many of which would affect the living standards of those on the lowest incomes. The key announcements contained in the Budget Report 2012 are as follows:

Tax changes

The personal allowance for Income Tax will increase by £1,100 in 2013/14, with some of this increase passed on to higher rate tax payers. The higher personal allowances for those over 65 are to be frozen and then phased out. The top rate of income tax is to be cut to 45p from 2013/14 and some tax loopholes closed. Analysis of the budget (by the IFS and Resolution Foundation – see below) shows that maintaining tax credit levels is more effective at helping those on lowest incomes than raising the tax threshold.

The Coalition government risks repeating the mistakes of the previous Labour government by focusing too much on tax and benefit incentives as the only solution to poverty, argues a budget briefing from the Joseph Rowntree Foundation, What will Budget 2012 Mean for UK Poverty? The briefing also argues that while, taken in isolation, the impact of the Coalition government’s aim to raise the tax threshold to £10,000 could help those on low incomes, it must be seen in the context of overall tax and benefit changes.

The briefing notes that for families with children the raising of the income tax threshold by £1,000 in April 2011 more than outweighed the gains created by freezing child benefit, reducing tax credits and reducing child care reimbursement.

The briefing draws on evidence from the organisation’s previous research to show how potential policy decisions in the Budget would affect poor places and people in the UK.

More than one third of the 141,100 people going through incapacity benefits reassessment have been found to be fit for work, according to the Department for Work and Pensions (DWP). The remaining 63 per cent of claimants were entitled to Employment and Support Allowance (ESA):

Thirty-four per cent were placed in the Work Related Activity Group, where they will receive personalised help and support to help them prepare for a move into suitable work in the future.
Twenty-nine per cent were placed in the Support Group and will receive unconditional financial support and will not be expected to work.

‘These first figures completely justify our decision to reassess all the people on incapacity benefits’, said Employment Minister Chris Grayling. ‘To have such a high percentage who are fit for work just emphasises what a complete waste of human lives the current system has been.’

The government’s new Universal Credit will hit poorer working mums the hardest, according to a report by the charity Save the Children. The report, Ending Child Poverty: Ensuring Universal Credit Supports Working Mums, argues that the potential impact of the new welfare system, which is due to replace tax credits and most benefits from 2013, risks making life harder for some families.

It identifies three main areas of concern:

insufficient earnings disregards for working mothers
lack of support for childcare costs
Universal Credit payments will be withdrawn too quickly.

Without changes in these areas, it argues, the scheme’s aims of making work pay by supporting parents into work and of reducing child poverty could be undermined.

A primary school in London’s most affluent borough is set to lose half its pupils as a result of the government’s benefits cap, according to a report in the Observer.

The school, St Cuthbert with St Matthias Church of England school in Kensington and Chelsea, the country’s richest borough, is making plans for the loss of up to 100 pupils in the wake of the government’s benefits cap.

The school’s headteacher, Stephen Boatright, said that children from six families had already moved to live as far away as Nottingham and Hull. He said schools in Enfield, north London, where the costs of private accommodation were lower, were already taking in huge numbers of children.

The £500-a-week benefits cap, which is due to be implemented in 2013, is expected to leave around 130,000 families across the capital unable to pay their rent.

In a speech to the think-tank ResPublica, the Children’s Minister Lib Dem MP Sarah Teather argued that ‘those who suggest that income plays no part in poverty are wrong’.

This appeared directly to contradict an earlier statement by the Secretary of State for Work and Pensions, Iain Duncan Smith (see Iain Duncan Smith rejects benefits as way to tackle poverty) that ‘tackling child poverty by boosting family income through benefits is a narrow approach’.

Current policies are unlikely to meet child poverty targets, according to a summary of research projects by the Economic and Social Research Council, Child Poverty Casts A Long Shadow Over Social Mobility. This ESRC Evidence Briefing, one of a series on social mobility, provides a detailed summary of the findings of a number of current research projects on child poverty. The research consistently identifies significant detrimental outcomes for children living in poverty and key barriers to moving out of poverty.

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PSE:UK is a major collaboration between the University of Bristol, Heriot-Watt University, The Open University, Queen's University Belfast, University of Glasgow and the University of York working with the National Centre for Social Research and the Northern Ireland Statistics and Research Agency. ESRC Grant RES-060-25-0052.